2010 Second semester Takayuki Asada
Chapter5 Management Accounting Information for Activity and Process Decisions After reading this chapter, you will be able to: 1) define sunk costs and explain why sunk costs are not relevant. 2) analyze make-or-buy decisions. 3) demonstrate the influence of qualitative factors in making decisions. 4) compare the different types of facilities layouts. 5) explain the theory of constraints 6)demonstrate the value of just-in-time manufacturing systems. 7)describe the concept of the cost of quality. 8) calcurate the cost savings resulting from reductions in inventories,reduction in production cycle time,production yields improvement, and reductions in rework and defect rates. 2
For 50 years,the Tobor Toy Company had been producing high-qulity plastic toys for children. In early 2006,Tobor experienced a large drop in sales and market share. After some investigations,this loss was attributed to a significant decreases in the quality of the product and to general delays in getting it to customers. After several weeks of study,Don and a cross-functional team of management personnel documented and numerous shop floor problems. Don Pielin,senior manager’s report to top management raised several questions. 1.Should many of the existing machines,including the major injectionmolding machine must be replaced. 2.What should the company do about the local vendor who produced the faulty computer chips? 3.Would it make sense to implement an entirely new production process such as JIT? 3
This chapter presents three types of facility designs(1) Process layouts,(2)product layouts,and (3)cellular manufacturing-all if which can be used to help organizations reduce costs. We follow this with a discussion of how organizations can reduce costs by ensuring that they focus on improving the quality of their processes. Finally the JIT manufacturing system is presented as a system that integrates many of the ideas we discuss in the chapter.
1.Evaluationof Financial Implications(p.208)
Managers must evaluate the financial implications of decisions that require trade-offs between the costs and the benefits of different alternatives.
2. Sunk Costs are not relevant.
When choosing among different alternatives, managers should concentrate only on the costs and revenues that differ across the decisions alternative ;these are the relevant cost/revenues. 5
Opportunity costs by difinition are also relevant costs for any decision. One category of costs that often causes confusion for decisions makers consists of those incurred in the past,or sunk costs. Sunk costs are the costs of resources that already have been committed and cannot be influenced by any current action of devision.
2) Relevant Costs for the replacement of a machine
Exhibit 5-2 Bonner Cmpany:relevant costs and revenues
Cost increase and cash outflows Cost savings and Cash inflows 1.Disposal of the $50,000 Old newtech machine 2. Montly cost saving labor materials Maintenance $4,400 1,000 800 $6,200
1.Down payment on the new precision machine 2.Monthly lease payments on the Precision machine
$50,0000 $ 6,000
3)Summary of Relevant Costs
Manager must be able to identify the costs and revenues relevant for the evaluation of alternatives.Equally important,they must recognize that some costs and revenues are not relevant in such evaluations.
4)Assuming Responsibility for Decisions
On a technical level,the correct decision for Bonner Company is to dispose of the machine and replace it;however,because they are concerned about their reputations within their own organizations,not all managers would do so. 8
3 Make or Buy Decisions
Management accountants often supply information about relevant costs and revenues to help managers make special one-time decisions. One example is a make-or-buy decisions. As managers attempt to reduce costs and increase the competitiveness of...
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